App Store Lessons: Set a sustainable price

Charge too much at the App Store and no one will buy your iPhone app. Charge …

In January, iPhone development company App Cubby decided to run an experiment. Reacting to user complaints about App Store's lack of a try-before-you-buy feature, App Cubby reduced its prices across the board to $0.99 and created a donation page where satisfied users were urged to donate the difference between the $0.99 and the actual value of the software.

The experiment was basically a complete failure. During the week App Cubby ran the experiment, the company received a grand total of $75 in donations. Yes, the sales volume of the company's re-priced offerings did increase, but not enough to offset the lack of donations and increased support responsibilities.

In a blog post titled "The Experiment," CEO David Barnard lays out the cold, harsh facts about App Store development. It's a lot easier to charge too little on the App Store than you might think.

In the rush to win the App Store lottery, developers have been pushing their prices to the bottom in order to get noticed and earn a place on the top 100 rankings lists. The problem is that revenues from an underpriced application simply will not let the developer sustain a business over the long term. Even if you can pull in more users to try the app, you aren't generating enough revenue to cover the real costs of doing business.

Barnard backed off from his experiment and is now taking a three-pronged approach to his marketing. The App Cubby apps have returned to a $10 price point. App Cubby will release lite versions to gain customer interest and offer a "try before you buy" scenario that does not depend on goodwill or donations. Finally, App Cubby will increase the value of its $10 products by releasing "substantial updates to each app in the next 60 days." Smartly, the company has taken the data transfer part of the equation into consideration. It will offer online sync to ease the transition between the lite and paid versions.

This three-point plan represents a sane response to the App Store gold rush, and one which plays into the best way to leverage the limits that Apple has placed on developers. As long as you comply with Apple's newly revised upsell policy and hook in purchasers by providing value instead of "Buy Now" buttons, lite versions educate users about your product and bring committed purchasers to your full product, not just the curious.

App Store is doing more than a million dollars in purchases every day. Pricing your apps at a sustainable level lets you create a business that extends beyond a few months, with a way to pay your programmers and designers and even build a profitable enterprise. Yes, you still need to market your product and provide value to the customer, but realistic pricing means you haven't tied yourself into an inevitable economic death spiral. Your app will compete on its merits and marketing, not on an unrealistic "people will buy it because it's cheap" mentality.